How prepared is Florida's property insurance market for a major hurricane?

Hurricane season officially will begin Tuesday, and Florida's state-run property insurance programs are better prepared this year than in the past. Private insurers are largely stable, but there are questions about whether several can handle the impact if major hurricanes strike the state.

The state's insurance programs, Citizens Property Insurance and the Florida Hurricane Catastrophe Fund, will be able to borrow the money needed to pay claims if the state experiences an active hurricane season.

But the financial problems some private insurers say they are facing have led legislators and regulators to support an insurer-backed bill, SB 2044, that would strengthen insurers by allowing them to increase rates and reduce some claims-related costs.

The catastrophe fund, which can sell $25 billion in backup coverage to insurers to cover big losses after a major storm, has about $6 billion in cash this year and can borrow as much as $26 billion more, if needed. Before hurricane season last year, the fund offered $29 billion in coverage, but had only $4.5 billion in cash and projected being able to borrow $11.3 billion.

The catastrophe fund sells cheaper catastrophe backup insurance to insurers, who pass the savings to customers. The good news about the fund is it also bolsters the private insurance market, which would rely on it to help pay claims.

"We are in better shape than we have been in a long, long time," said Sam Miller, executive vice president of the Florida Insurance Council, which represents insurers.

Citizens officials also have said the insurer could pay $14 billion of $22 billion in claims that could result if there's a major storm. It would make up the $8 billion difference by taking out loans offset by policy fees allowed under state law, said Citizens spokeswoman Christine Turner. It had $3.6 billion in reserves last year — $800 million less than this year — but it would have had to borrow less, $6.7 billion, because it relied more heavily on backup coverage then.

Regulators and analysts will have a better sense of the resiliency of the market when insurers finalize in the next week or so how much catastrophe backup coverage they're purchasing.

Insurers point to some troubling signs for the industry: Four home insurers folded since early last year and five companies that took over policies from Citizens in years past want to return them to the state's insurer of last resort. Regulators already have authorized four to return a combined 23,700 policies.

Demotech, a rating agency that evaluates the financial strength of dozens of Florida insurers, withdrew a strong rating for two — HomeWise Preferred Insurance and Argus Fire & Casualty — this year.

Demotech President Joseph Petrelli said many insurers' investors or parent companies were asked to send more cash to the insurance companies to beef up their claims-paying reserves. "Many have done that. There's capital being infused in the marketplace," he said.

Insurance company officials, adjusters and others gathered in Fort Lauderdale this week to discuss hurricane preparations at the governor's annual hurricane conference.

Bob Hartwig, president of the Insurance Information Institute, spoke at the conference, calling Florida's insurance market "America's most dysfuncational" because of legislation in 2007 and 2008 aimed at lowering insurance premiums.

Before the speech, he said Florida's approach of suppressing rates contributed to the housing bubble because it allowed developers to keep building near the most hurricane-prone areas.

He said real estate agents' influence in Florida is evident by the Legislature passing a bill, HB 545, that would roll back a requirement that home buyers be informed of the ability of a home to withstand a hurricane. Crist has until Tuesday to sign or veto the bill.

Since early last year, state regulators have required about 15 residential property insurance decreases but also approved more than 100 increases.

Nearly half of 210 property insurers with a significant presence in Florida reported that premiums collected during the first half of the year weren't enough to cover claims and expenses.

The trend is similar across the country, according to a report last month by rating agency A.M. Best. The U.S. property and casualty industry's net written premiums decreased in 2009 — for the third year in a row — but its claims-paying reserves grew by 9 percent to $519.3 billion from $477.2 billion at the end of 2008, according to the report.

"The industry enters the season on the strength of underwriting and financial results that rebounded in 2009 after deteriorating in 2008, a year marked by catastrophe losses from hurricanes Ike and Gustav and poor investment returns associated with the global financial turmoil," A.M. Best stated this month when it released a report called "With Full Coffers, Insurers Watch Ominous Hurricane Forecasts."